Research in Motion: Analysts Mostly Downbeat Ahead of Earnings

By Dave Kansas

Like most of the market, Research in Motion is having a ragged day. Its shares are down 2.2% at $36.78.

The BlackBerry maker reports earnings next Thursday, and analysts are busily updating forecasts, mainly in a negative vein. But there are still RIMM believers out there.

Here’s a rundown of what the Street Scribes are saying ahead of RIMM’s earnings report, starting with one of its (sort of) bullish backers.

MKM Partners, Buy, Price Target $62, Reduced from $79

We are lowering our 2011 estimates on product delays and faster-than-expected fade of Bold 3G in various markets, but anticipate a strong rebound as new product is expected to arrive. We acknowledge the uncertainty about launch timetables; however, we firmly believe markets are underestimating RIMM’s international growth prospects.

Our research indicates operators in Europe and Asia need a third alternative to Android and iPhone; Symbian is eroding rapidly and Windows market share is dropping below 3% outside North America. Our FY12 revenue estimate goes down to $24.3 billion from our earlier $26.2bn projection; our EPS estimate also declines to $6.97 from $7.53.

Furthermore, due to product delays, we are lowering our 12-month price target to $62 from $79.

Morgan Stanley, Equal-Weight

We believe RIM has now squandered nearly every opportunity and competitive advantage it enjoyed through ineffective R&D resource management, delayed product launches and misreads of the competitive environment. With the 9900 launch now likely pushed out til Sept, the remaining BB7 phones now likely just launching in Oct/Nov, and new Playbook models on the way, we believe RIM may have run out of R&D capacity to launch its QNX handset in the CQ1/ FQ4 timeframe it was shooting for.

We expect RIM to lower its guidance for FY12 EPS of “approx $7.50,” to a more realistic $6, already once reduced from “greater than $7.50.” Our new FY12 EPS estimate is $5.74, down from our prior estimate of $6.79. Our base case falls to $42 from $71, 7x our CY11 EPS est of $5.95, a discount to the peer group at 13x. We believe FQ2 guide could be similarly disappointing, assuming the Bold 9900 launch is delayed to Sept from Aug missing back-to-school.

Goldman Sachs, Sell, Price Target $40

Near-term weakness is already discounted but EPS decline next year is not; lower 12-month price target to $40. We expect RIM’s quarter to be largely in line with its 4/28 negative preannouncement and guidance to be slightly below consensus. Our F2Q (Aug.) sales/EPS estimates are $5,441 mn/$1.40 vs. the Street’s $5,487 mn/$1.42. We believe the stock’s recent underperformance already reflects RIM’s near-term weakness. However, while our August quarter estimates are only slightly below Consensus, our 2H and FY13 estimates are sharply lower on lower ASPs and margins. Our sensitivity analysis suggests Street estimates and management’s FY12 EPS guidance are overly optimistic, given RIM’s rapidly deteriorating mix, accelerating share losses in North America, and tepid response to the PlayBook.

ThinkEquity, Hold, Price Target Reduced to $42 from $48

We reduce our price target on RIMM ahead of next week’s May earnings report. We generally expect a “meet” for May relative to RIMM’s 5/31 pre-announce. For August, we expect a “keep” likely to bracket consensus of $1.43 and our own $1.55 forecast, which assumes approximately one-month shipment of RIMM’s new 9900/9930 devices. Despite the roughly $20 year-to-date or 35% pullback in the stock versus the NASDAQ Composite up 1.2% over the same time period, we maintain our Hold rating pending visibility of a return to earnings growth.

UBS, Neutral, Price Target $45

While the stock has sold off hard, we await clarity on how RIMM intends to fend off mounting competitive pressure while managing a complex HW/OS transition. With Android on the rise, a potentially resurgent MSFT-Nok, BBM competitors (WhatsApp, iMessage), RIMM’s position appears incrementally weaker.

Susquehanna, Negative, Price Target Reduced to $31 from $46.

We believe RIM faces mounting risks to its market share and margins in FY2H12 based on a number of factors mainly related to its product cycle, the cut-over to a new OS, and an increasingly competitive environment. The current “air pocket” in new devices and weak demand is expected to result in soft guidance for FY2Q12 and to continue to pressure shares.

Given that we are maintaining our Negative rating, we are often asked where can RIMM’s shares find a floor? We would argue that, as is the case with most tech stocks, that normal P/E valuation multiple arguments do not hold while EPS estimates continue to be revised downward or appear at risk and there is margin compression. We believe there are still a number of negative catalysts that exist and need to get resolved before we can get more constructive on RIMM’s shares. That being said, we revised our bear case scenario analysis and are lowering our downside fair value to $28. In the bear case, we assume shipments of 13.5 mln in the May quarter (at the low-end of guidance), and down Q/Q again in the August quarter due to the lack of new devices and a potential push out of the initial Blackberry OS7 smartphones. In FY2H12, we estimate a below seasonal ramp 2H/1H of only 3.5 mln incremental handsets (up 14% vs. the roughly 25% historical average) with a more pronounced mix shift toward the Curve family vs. the Bold/Torch bucket – pressuring both ASPs by about $3 and gross margin down to 38.5% for FY12 (vs. 39.6% in our base case). The result is an EPS of $5.00 in the bear case (vs. our $5.59 base case). Applying a similar roughly 6x P/E multiple yields a downside fair value of about $28.

Comments (5 of 7)

RIM is worth what the market deems it is worth and right now, the market doesn't believe a lick of what Balsillie is saying. Already they have implemented a hiring and salary freeze for the remainder in the year - time to buckle down the hatches going into Thursday.

6:13 am June 13, 2011

respighifan wrote :

Whatever - the company makes profits, has no debt, has a current margin of 29% while NOKIA is at 4.5%.

Everybody with big bucks is hammering the stock because it is fun and profitable to play with - everyone else buys into the nega-hype...

At some point the stock will rise when people realize they cannot short it to make money. That's what it will take.

5:21 pm June 12, 2011

Tyler wrote :

It should be RISM - Research In SLOW Motion

9:16 am June 12, 2011

BB is a dead brand wrote :

Most carreirs don't even feature it on their websites. Its all iPhone and Android from here on out!

9:26 pm June 10, 2011

j. flicker wrote :

My new BB Bold 9700 is amazing. Carrier that I got it from says that it is their top selling brand.

Thanks for reading MarketBeat. We would like to direct you to MoneyBeat, the Wall Street Journal’s brand new global blog. MoneyBeat unites MarketBeat, The Source, Overheard and all the Deal Journal blogs, bringing together all the market, M&A, IPO and hedge-fund news from those blogs into a 24-hour hub for finance news. Check it out and let us know what you think at moneyblog@wsj.com.

About MarketBeat

MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what’s happening in the markets. Lead writers Paul Vigna and Steven Russolillo spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to paul.vigna@wsj.com or steven.russolillo@wsj.com.